No Microsoft settlement, Monti says

Software giant likely faces fine in European dispute

By

EmilyChurch

LONDON (CBS.MW) -- Mario Monti, Europe's chief antitrust regulator, said Thursday that settlement talks with Microsoft have failed, paving the way for the Europe Commission to fine the software giant for market abuses.

As a result, the commission is likely next week to announce a remedy and any fines to be imposed on Redmond, Wash.-based Microsoft
MSFT, -0.71%
Fines could range from $100 million to $1 billion, analysts estimate.

"A settlement to the Microsoft case has not been possible," Monti said, as AFX reported from Brussels. "A proposal concerning fines will also be on the table of the commission next Wednesday."

Microsoft Chief Executive Steve Ballmer has been in Brussels this week to seek a deal as the commission's deadline loomed. On Monday, European member states backed Monti's Competition division findings that Microsoft violated European competition rules.

Microsoft shares fell 24 cents, or about 1 percent, to $24.89, its lowest close since June.

Still, analysts expected a limited impact on Microsoft's shares, because the software giant has such a massive cash position to offset the fine and because an end to the five-year-old case will move Microsoft closer to a decision on how to spend the reserves it's built up. See full story.

The Department of Justice said in a statement issued late Thursday that it will continue to enforce its own ruling against Microsoft, but that it was too early to know what the EU will do.

"It is premature to speculate on the contents or substance of whatever decision, remedies, or penalties the EU may eventually decide to impose," the DOJ said in the statement.

Microsoft to contest

Microsoft plans to contest the commission's decision in a European court, starting a process that can take years. It also said it remains open to a settlement.

The commission's draft remedy plan is expected to propose that Microsoft share some of its secret coding with rival server vendors and to offer PC makers its Windows operating system without bundling its multimedia software, Windows Media Player.

Talks broke down over Microsoft's future ability to bundle applications in its Windows platform, comments from Monti as well as Microsoft officials suggest.

Ballmer said in a statement that the company was "unable to agree on principles for new issues that could arise in the future."

Added Microsoft General Counsel Brad Smith: "We have to ensure that the law is not just about competitors' complaints about the impact of new features. There needs to be consideration of the needs of consumers for new innovations. ... Perhaps the courts will provide the clarity that is necessary to resolve these issues."

U.S. companies should pay attention

Monti, a former professor, blocked General Electric's
GE, +1.35%
acquisition of Honeywell International
HON, +0.40%
in 2001.

Europe's Microsoft case is clearly different in that it involves business practices rather than a merger. But it does have echoes of GE-Honeywell, said Martin Coleman, head of competition practice at London-based law firm Norton Rose.

"Microsoft settled its U.S. antitrust action but was unable to settle in Europe. It does send said signals to U.S. companies that that they've got to take European competition rules very seriously," he said.

Microsoft settled the antitrust case brought by the U.S. Justice Department over two years ago. GE had also been able to reach an agreement with U.S. regulators for the Honeywell deal to be cleared.

Fines maximum would be $3.2 bln

Monti said he would urge the commission to adopt his ruling on the case, including fines, at its meeting on March 24, AFX reported.

Europe can set fines of up to 10 percent of global sales, which in Microsoft's case would mean fines of $3.2 billion. Few expect the commission to impose anywhere near the maximum.

"In the end, I had to take a decision as to what was best for competition and consumers in Europe," Monti said. "It is essential to have a precedent which will establish clear principles for the future conduct of a company with such a strong dominant position in the market."

The EC is the executive branch of the European Union.

Europe has accused Microsoft of abusing its dominant position in PCs to forward Windows Media Player, as well as in server operating systems.

Microsoft's practice of bundling applications, such as the music and video players with its Windows platform, is a focus for Monti in his five-year-old case.

There are two other antitrust cases in Europe still ongoing, related to Microsoft's positioning in software that runs multimedia mobile phones as well as licensing terms given to hardware makers.

Any monetary fine on Microsoft isn't likely to significantly impact Microsoft with its massive cash reserves, Banc of America said this week.

"The potential impairment on Microsoft's bundling strategy as a result of the remedy remains the greatest risk to Microsoft in this case," the broker said.

Goldman Sachs added: "We would expect Microsoft to appeal but nevertheless expect some decision from Microsoft on the use of cash by the July analyst meeting given that the EC decision noted in the press thus far has not been materially adverse to Microsoft's business model."

Intraday Data provided by SIX Financial Information and subject to terms of use. Historical and current end-of-day data provided by SIX Financial Information. All quotes are in local exchange time. Real-time last sale data for U.S. stock quotes reflect trades reported through Nasdaq only. Intraday data delayed at least 15 minutes or per exchange requirements.